Sunday, October 29, 2006

Trusting the poor pays in lending

REFLECTIONS -- By Fr. Shay Cullen

The Nobel Peace Prize, the most prestigious of awards, has been given this year to the banker who trusted the poor. Muhammad Yunus, a man of vision, was a professor of rural economics at the Chittagong University, Bangladesh.

In 1976 this son of a rich goldsmith was motivated to help the poor by his mother’s kindness and compassion for impoverished people. He created an ingenious and simple way to change the lives of millions of destitute people around the world.

It is today a banking system for the poor based on the trust and belief that most poor women can be trusted to repay small loans. An estimated 98.5 percent of them do and loans are given without any collateral or any security whatsoever. This concept is anathema to traditional bankers everywhere but it has paid off in Yunus’ Grameen bank that has spread throughout the world helping millions who would otherwise never be eligible for a loan because they had no property to use as collateral to secure a loan.

Yunus trusted the impoverished women to make good business with the small loans and repay within the specified time.

The idea was revolutionary and microcredit has become one of the most effective and empowering financial systems to help the poor overcome crushing and devastating poverty. The bank succeeds because the loaning and repayment system is operated as much as a social development project as it is a capitalist enterprise. There are 6.61 million borrowers and 97 percent of them are women. Yunus believed that women are more reliable and could be trusted to work together in small groups to help each other to succeed in their projects and not to default on a loan.

At the village level, the social workers and staff of the bank organize the villagers or urban dwellers into groups of five and each has to help the other to succeed. Only two of the five get the loans first. When they are successful the other three get theirs. So the other three have a great interest to see that the first two would succeed. The two in turn have a strong motivation to return the favor by helping the three succeed, too. Then they could all get new loans to expand their small enterprises. If one fails to repay, the other members of her group will not get their loan approved or renewed. This power of the peer group to ensure repayment is a guarantee of no default. All help each other. Five of these groups are joined to form a bigger support group and they help each other, too.

Years ago at the Preda Human Development center in the Philippines, I turned to the Grameen bank system to help the villagers around Subic Bay and throughout Zambales. The Grameen in the Philippines was largely founded and operated by an Irish Columban confrere of mine, Father Sean Con­naughton. He came to Zam­bales and established a well managed and disciplined Grameen micro-finance loan project that has helped thousands escape poverty. I saw first hand how this system works.

The remote villages had no stores and families had to cross the bay in their flimsy boats or traverse the mountain to get salt, cooking oil, garlic and other basic needs to repair their fishing boats or get other necessary items. Mostly, they had to borrow from loan sharks at usurious rates that crippled them and drove them into even greater poverty and despair.

When Father Connaughton brought in the Grameen loan system most of the women set up a small business that served the community. One woman became the supplier of salt and oil, another brought a sewing machine and made clothes for the village and another became the maker of brooms. Another set up a fishing supply business. All of these were based in their own homes.

Preda’s social workers gave them seminars on family values and children’s rights. When a mobile phone signal was detected in the area, a woman got a small loan to buy a cell phone and set up a village phone business connecting her neighbors to the world.

No one dared to default; they would earn the ire and complaints of their neighbors. It brought peace, prosperity and cooperation to the villages. The women achieved a higher status in the community and were treated with greater respect. It shows that capitalism based on compassion and justice, devoid of greed and exploitation can work to reduce and even eliminate poverty. All this because of one man, Muhammad Yunus who trusted the poor, a trust that is being repaid a million times every day

"Bagumbayan is not a place or a name. It is character, attitude, values and principle. It is a solution to the ills of
society
and a vision of a great
country."
"What this country needs is not a change OF men but a change IN men" Dick Gordon
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16 January 2012